Saudi outflows are worrying omen in Mideast crisis

By Una GalaniThe author is a Reuters Breakingviews columnist. The opinions expressed are her own.

LONDON — Investors in Saudi Arabia are finally thinking the unthinkable. As the wave of uprisings sweeping across the region edges closer to its borders, the arrest of a Shi’ite cleric in the Sunni-ruled kingdom’s restive, oil-rich Eastern Province helped trigger a 7 percent fall in the Middle East’s biggest market. The $20 billion-plus outflow is a worrying omen.

Until now, there has been a reluctance to believe Saudi could be vulnerable to the crisis gripping the region: bullish investors point to the kingdom’s vast wealth as a powerful tool to quell social unrest. The stock market fall on March 1, just days after the ageing King Abdullah announced a $37 billion package of handouts, suggests that investors are questioning whether Saudi will stay a special case.

The marked change in sentiment is especially significant given Saudi is a local and retail-dominated index. The plunge probably is being driven by domestic wealth rather than typically jittery hot foreign money. The stock market — worth more than the combined values of indexes in Egypt, the United Arab Emirates and Qatar — is now down 16 percent since the start of the year, making it one of the worst performing indexes in the region after Egypt and Dubai.

Unrest is gathering pace in Bahrain, and has appeared out of the blue in Oman — both richer than the kingdom on a per-capita basis. Saudi investors may well decide to stash cash under the mattress or send it abroad to safer havens like Abu Dhabi, Switzerland or Singapore.

Before this week, Saudi stocks carried a premium valuation to regional peers, according to AlembicHC research. It is now trading in line with them. Still, if investors really thought the Saudi regime was vulnerable, the market gyrations that could follow would make the falls on March 1 look like a modest dip.